IRAQ'S ECONOMIC VISION

UNCLAS SECTION 01 OF 10 BAGHDAD 002854

SIPDIS

KHARTOUM for D Party - Ross Wilson

E.O. 12958: N/A
TAGS: ECON PREL IZ ECON
SUBJECT: IRAQ'S ECONOMIC VISION


1. SUMMARY: At the June 22, 2005 International Conference
on Iraq held in Brussels, hosted by the US and EU and
attended by over 80 countries and organizations, Iraqi
Finance Minister Ali Allawi and Minister of Planning and
Development Cooperation Barham Salih jointly presented the
ITG's vision for the economic reconstruction and
development of Iraq, highlighting current priorities and
challenges. Paragraph two contains the "vision statement"
distributed at the Conference. Para three contains the
text of Planning Minster Saleh's speech, and para four
contains the text of Finance Minister Allawi's speech. The
ITG will further elaborate the vision laid out in Brussels
at the July 10-11 US-Iraq Joint Committee on Economic
Reconstruction and Development(JCRED) in Amman, Jordan,
chaired by Deputy Secretary Zoellick and Finance Minister
Allawi, and at the July 18-19 IRRFI Donors Conference in
Amman, where Minister Salih will present the ITG's National
Development Strategy. The Brussels documents outline a
clear message of the ITG's commitment to reform and market-
oriented development. Embassy Baghdad believes they will be
useful to posts as they approach host governments on the
July 18-19 IRRFI Conference. END SUMMARY


2. Vision Statement:

BEGIN TEXT

Iraq's Strategic Vision For National Development

Presented to the International
Conference on Iraq
Brussels, Belgium
21-22 June 2005

Republic of Iraq [flag of Iraq]
Ministry of Planning and Development Cooperation

Vision Statement
"Accelerating the Pace and Reconstruction and Development"

The Government of Iraq has a clear vision for the country
based on its National Development Strategy. The Vision is:

"Transform Iraq into a peaceful, unified federal democracy
and a prosperous, market-oriented regional economic
powerhouse that is fully integrated into the global
economy."

This ambitious Vision can only be achieved by a market-
oriented economy. One that is open to the world, driven by
the ingenuity and creativity of private enterprise, founded
on the rule of law, and led by a democratic, transparent
and accountable government.

The reforms required to achieve this Vision are complex and
challenging but need to be carefully paced and sequenced,
accompanied by social safety net measures to protect the
poor and most vulnerable in society.

The recently published Iraqi Living Conditions Survey
documents the severe deterioration in the quality of life
of the Iraqi family relative to a baseline of 1980, when
the previous regime began its tragic effort to gain
regional hegemony. This is reflected in the unstable and
unreliable supply of electricity with more than 3.2 million
households experiencing interruptions. The high cost and
low quality of water with more than 76 percent of all rural
households having problems accessing drinking water. The
alarming reduction in urban access to safe drinking water
from 90% to 60% of the population. The decline in the
quality of sanitation with more than 1.5 million people
suffering from unimproved sewer systems and the high cost
and low quality of housing with more than 45% of all
households reporting dissatisfaction.

The Survey also documents the precipitous collapse of the
health system. This is reflected in the decline in primary
health care centers from 1,800 in 1991 to 929 in 2001 of
which more than 30 percent need rehabilitation. Maternal
mortality remains above regional averages with more than
half of deliveries taking place at home in rural areas.
The high incidence of respiratory infections in urban areas
and the fact that over 200,000 Iraqis have chronic illness
due to the war serves to underscore the poor overall
conditions of the population.

The Survey shows there is widespread unemployment in Iraq,
in particular among young men whose unemployment rate
reaches an astonishing 37 percent. The employment
situation is complicated by the fact that Iraq has an
estimated 192 state-owned enterprises that together employ
500,000 people. Yet many of these state-owned enterprises
are not commercially viable, many having been looted and
destroyed during the war. Indeed, most of these
enterprises are idle and will not be able to create jobs in
the foreseeable future. Supporting these loss-making
state-owned enterprises imposes a huge burden on the
economy and crowd out opportunities for new private-sector
initiatives.

It is evident from the above grim statistics that the
legacy of the previous regime, and regrettably the failure
of the international community to ensure that the Oil-for-
Food program was immune from manipulation by the previous
regime, has caused immense damage to Iraq.

Given these serious challenges, Iraq is determined to its
unequivocal and enduring commitment to the path of reform
and to deliver effective results-driven leadership. This
will require the transparent and efficient use of public
expenditures, from both domestic and foreign sources, and
the eradication of corruption.

A reflection of this commitment is the fact that the
Ministry of Finance, the Central Bank of Iraq and the
Ministry of Planning and Development Cooperation (MOPDC)
have jointly resolved to create synergies by working
together more effectively to implement the needed reforms.

The Ministry of Finance will continue to play a leading
role in economic policy making with a particular emphasis
on maintaining budget discipline and implementing sound
fiscal policy. The Central Bank of Iraq will continue to
lead in implementing a sound monetary policy and prudent
regulation of the financial and banking systems.

MOPDC is the lead Government agency for private sector
development and investment planning and investment
promotion. It will continue as the officially designated
focal point for the international donor community, and is
charged with the overall supervision of the preparation,
negotiation, implementation, and evaluation of all donor-
funded projects in Iraq.

However, it is clear that Iraq cannot achieve this
ambitious Vision in isolation. Iraq will require enhanced
partnerships with the international community. Enhanced
partnerships, based on mutual accountability, will
accelerate the pace of reconstruction and development and
improve the quality of life of the ordinary Iraqis.

The partnership between Iraq and the international
community has realized remarkable achievements since the
dawn of the new Iraq. In the area of infrastructure
rehabilitation, telecommunication networks have been
expanded, electricity and water networks improved, over
1,000 schools have been rehabilitated and numerous roads,
bridges and ports are under construction.

In the area of fiscal and monetary policy much has been
done to restore the capacity and credibility of Iraq's
financial institutions. Our efforts in monetary reform
have stabilized the new Iraqi Dinar and restrained
hyperinflation. This includes providing Central Bank
independence and strengthening the tools of monetary
policy. Achieving the Paris Club debt forgiveness
agreement has dramatically improved Iraq's fiscal stance as
has introducing fiscal prudence into budgetary processes
with a view towards equity and accountability. Steps
towards accountability include improving the fiscal
oversight powers and auditing capacity of the Board of
Supreme Audit and ministerial inspector general offices, as
well as establishing precedents for use of independent
external auditors on government accounts.

In the area of market-oriented reforms, Iraq has revised
several of its key commercial laws, maintained low custom
fees to encourage imports and exports, developed strategies
for reducing government price controls and laid the
groundwork for privatization. Iraq has also established a
major agricultural revitalization campaign and passed an
internationally compliant insurance law in March 2005 that
became effective in June, 2005.

To deepen integration with the world economy Iraq signed an
Emergency Post Conflict Assistance (EPCA) agreement with
the IMF, initiated WTO accession talks, and concluded the
United Nations Oil-for-Food program.

However, despite the tremendous progress to date, much
remains to be done to overcome formidable challenges facing
Iraq. Iraq has demonstrated its commitment to transparent,
accountable and efficient use of public resources. If,
together, we are to meet the pace we need to achieve our
goals, we will need international donors to sharply scale-
up resource transfers, including direct budget support, and
ensure that pledges are disbursed in a predictable manner.
It will also be necessary to streamline and simplify the
procedures for disbursing donor assistance, and ensure that
nation-wide projects are executed nationally and are fully
aligned with the priorities established in Iraq's National
Development Strategy (NDS).

Priorities
Our Strategic Vision rests on the following key drivers of
economic performance:
- Removing constraints to private sector development, which
is the future engine of job creation and economic
diversification, within a strong legal and regulatory
framework supported by accountable government institutions.
- Improving the quality of life and ensuring gender
equality and human resource development.
- Strengthening good governance, democratization and human
rights. Transparency and accountability are an integral
part of successful government operations in a democratic
country governed by the rule of law.
- Enhancing donor coordination for development
effectiveness.

Objectives

Within each priority we have identified the following key
objectives:

Creating an Enabling Environment for Sustainable Economic
Growth


1. Maintain low inflation within the context of sound
monetary policy, and expanded monetary policy tools.

2. Maintain fiscally sound budgets and transparent
controls for budget formulation. Meeting fiscal targets
will be assisted by subsidy reforms. The Government is
about to announce the first phase of a two-pronged plan to
increase the official price of fuel and create a private
sector role to import refined petroleum products for retail
sale. The Government also expects to remove ancillary
products included in the Public Distribution System (PDS)
basket, as well as implement pilot projects for
monetization of the PDS' benefits.

3. Develop and implement mechanisms to ensure transparent
and full accountability of oil revenues within the budget
process, including recommendations from the IAMB and their
auditor KPMG.

4. Conclude debt relief agreements with both Paris Club
and non-Paris Club creditors.

5. Implement all macroeconomic and structural reforms
under the IMF's Emergency Post Conflict Assistance (EPCA)
agreement, including implementing a timely and accurate
monetary survey and establishing a single treasury account.

6. Improve the quality, timeliness, and range of financial
and economic data produced by government offices for
economic planning.

7. Secure the return of frozen assets from a number of
countries, including Syria, Lebanon, Jordan, Kuwait,
Switzerland and Thailand.

8. Establish independent national oil and gas companies
(both upstream and downstream),and promote sector
partnerships between Iraqi and foreign oil and gas
companies.

9. Implement fiscal decentralization and devolution of
planning responsibility to local and regional governments.

10. Diversify sources of growth towards agriculture and
services.

11. Increase domestic resource mobilization by creating
conditions conducive to private savings by strengthening
the deposit-taking commercial banking sector with a
national payments system.

Removing Constraints to Private Sector Development

1. Streamline and simplify the procedures for doing
business in Iraq. In that context a new Foreign Investment
Law is under consideration, including the establishment of
an Investment Promotion Agency.

2. Implement commercial and regulatory reform to develop a
transparent legal and institutional framework to encourage
entrepreneurship.

3. Lay the groundwork for eventual privatization of state-
owned-enterprises, according to orderly, fair, consistent
and transparent procedures.

4. Promote private sector-led implementation of local
community projects that are executed nationally.

5. Restructure State-owned banks to encourage
consolidation and privatization.

6. Expand the availability of commercial capital through
concessional financing for micro-finance and small and
medium enterprises.

7. Complete accession to the World Trade Organization
(WTO) and revitalize regional trading links.

8. Close the digital divide by increasing access to
telecommunications.

9. Rehabilitate and expand regional airports.

10. Rehabilitate and expand the national railway network.

Improving The Qualify of Life

1. Increase electricity generation and distribution to
meet current and projected needs.

2. Provide clean accessible water to all Iraqis.

3. Equip and expand hospitals and primary health care
centers.

4. Increase affordable housing units through housing
finance facilities and a securities-based mortgage system
that allows lenders to pool their risks.

5. Explore the possibility of providing an oil-dividend to
all Iraqis to enable them to share in the rich natural
wealth of the country. This is consistent with the
Transitional Administrative Law (TAL) that calls for
distributing oil revenues in an equitable manner. An Iraqi
National Identity Card System will be instrumental in
ensuring the success of this program. But more importantly
will be a consolidated governmental effort to continue
improving the formulation, execution, and oversight of
fiscal policy and oil revenues in Iraq with added
transparency, public participation, and stronger
institutional checks and balances.

6. Increase adult literacy and vocational training.

7. Reduce school dropout rates.

8. Reduce maternal and infant mortality.

9. Enact a social safety net program for the poor and
vulnerable, which may extend from reform and monetization
of the PDS basket.

10. Restructure and accelerate demining activities, with
MOPDC responsible for budgeting and the Civil Defense Corp
and/or Ministry of Defense responsible for demining
operations.

Strengthening Good Governance, Democratization and Human
Rights

1. Accelerate judicial reform to ensure an impendent and
effective Judiciary.

2. Implement the new public procurement regulations for
Ministries and public agencies for proper and effective use
of State funds.

3. Establish a Leadership Code of Conduct and Ethics
requiring inter alia declaration of wealth by public
officials to ensure good governance.

4. Strengthen the Public Integrity Commission and
decentralize its activities to the regions to eradicate
corruption.

5. Continue strengthening the Board of Supreme Audit and
decentralize its activities to the regions to ensure
transparency in public financial management.

6. Train the police and prisons force in human rights.

7. Empower civil society, including support for a free
press.

8. Establish e-government to modernize governmental
business processes.

9. Promote gender equality as a general public policy.

Enhancing Donor Coordination for Development Effectiveness

1. MOPDC will strengthen its capacity as the Government's
lead agency for private sector development and investment
planning and investment promotion.

2. Through its Grant Aid Coordination Unit, MOPDC will
strengthen its role as the point of contact for all donor
coordination, to ensure the proper and effective allocation
of all donor resources to the areas of highest priority,
under the overall policy guidance of the Iraqi Strategic
Review Board (ISRB).

3. MOPDC will strengthen its capacity to coordinate
directly with the Ministry of Finance to integrate donor
funding into the national budget, to ensure conformity with
the overall budgetary framework.

4. MOPDC will strengthen its capacity to guide, assist and
supervise sector Ministries in their national execution of
donor-funded projects within their respective sectors, and
coordinate between these Ministries and multilateral and
bilateral financial and developmental organizations.

5. As Chair of the Council for International Coordination
(CIC),the Minister of Planning and Development Cooperation
will recommend a new donor coordination mechanism that will
be more inclusive, Iraqi-led, based in Baghdad, linked to
donors in Amman, Jordan via video-conference, and supported
by the United Nations and other donors and institutions.

6. Donors will be urged to simplify and harmonize their
policies, procedures and practices to minimize bureaucracy
and delays in project implementation.

7. Operationalize a comprehensive Donor Assistance
Database.

Conclusion
Iraq's Vision is about achieving demonstrable socioeconomic
development results for all Iraqi people that are
sustainable over the long-term and touch the lives of every
single Iraqi. This is an integrated Vision with clear
inter-relationships between many aspects. Often key
activities under one objective will also contribute to
delivering others.

Anchoring our Vision for the future is the realization that
improving the quality of democratic institutions and
processes, managing the changing role of the State and
promoting a vibrant civil society must underpin our
overarching goal to rebuild Iraq and improve the quality of
life of all Iraqis.

The forthcoming National Development Strategy (NDS),to be
presented at the IRFFI Donor's Committee Meeting in Amman,
Jordan on July 18-19 2005, will provide additional details
of Iraq's Strategic Vision and specific objectives for
economic reconstruction and development. It will link
priorities for reconstruction with broad reform initiatives
in order to articulate national economic goals for the
benefit of the Iraqi people and assist the international
community in delivering support. The NDS will encompass
the established economic policies of the Iraqi government
as reflected in the TAL, the EPCA agreement signed with the
IMF, and the Financial Management Law. The NDS will be
endorsed by the National Assembly, which represents the
voice of the Iraqi people.

Dr. Barham Ahmed Salih
Minister of Planning and Development Cooperation
Chairman of the Iraqi Strategic Review Board (ISRB)

Iraq's Strategic Vision for National Development

END TEXT


3. Text of Planning Minister Barham Saleh's Speech:

BEGIN TEXT

Speech by:
Dr. Barham Ahmed Salih
Minister of Planning & Development Cooperation
Presented to the
INTERNATIONAL CONFERENCE ON IRAQ
Brussels
21-22 June 2005
International Conference on Iraq, Brussels, Belgium -22
June 2005

Your Excellencies,
Distinguished participants,
Ladies and Gentlemen,

Let me start by thanking the United States and the European
Union for co-hosting this International Conference on the
future of Iraq here in the beautiful city of Brussels. I
would also like to thank all of you for participating in
this important conference. It shows the commitment of the
international community to the future of the new Iraq.
This conference is an excellent opportunity for the first
democratically elected government of Iraq to share with the
international community its Vision and aspirations for the
future.

I would like to begin by discussing the role of development
cooperation and planning as I see it in the reconstruction
and development of Iraq.

By just looking at the title of my Ministry many of you
will know that the Ministry of Planning and Development
Cooperation is responsible for donor co-ordination within
the Iraqi government. That is correct. But not many of you
will know that we are also responsible for setting Iraq's
public investment priorities in consultation with line
Ministries, disbursing the resources and monitoring
investment performance.

In addition, we are also responsible for promoting private
investment.

I also need to emphasize that we are NOT involved in
central planning---far from it. We believe in empowering
local and regional authorities to participate in their OWN
development by identifying their own priorities and
choosing their own strategies. We believe that
decentralization is the key to development effectiveness.
It brings decision-making to the grass-roots level ensuring
transparency, greater accountability and eradicates
corruption.

But what is the significance of having both investment and
development co-operation under one roof?

We think it is important because it reflects our view that
private and public investment are strategic complements
that hold the key to a brighter future for Iraq. We
believe that investment is the key driver of economic
growth and rising prosperity. Working together, public and
private investment create powerful synergies that are the
spark for economic growth, igniting job creation and
raising living standards.

Prudent public investment in water, health, electricity,
roads, schools and security provides a conducive ground in
which private investment can flourish.

This formula has worked all over the world-from the United
Arab Emirates in the Middle East to Malaysia and South
Korea in the Far East to Mauritius in Africa and right here
in Europe which was rebuilt after World War II with massive
investments from the Marshall Plan.

We are convinced that the same formula will work in Iraq.
But what does Iraq need to do to attract both foreign and
domestic investment and prudently manage public
investments?

We need an enabling environment. An enabling environment
for investment is about partnership between governments and
the private sector, sharing risks between them to be
managed by those best placed to do so.

Such a partnership demands good governance, sound policies
and capable institutions. We have already achieved much in
this area DESPITE the difficult transition marked by the
crippling legacy of tyranny and the challenges of
confronting terrorism.

- We have the lowest customs fees and the most open
trading regime in the region.
- We have the most business friendly laws on
corporations, banking, securities, and foreign investment
in the region.
- We have a new stable currency backed by an independent
central bank.
- We have established a Commission on Public Integrity,
along with Inspector Generals in each Ministry as part of a
comprehensive approach to combat corruption.
- We have started talks on joining the WTO, and signed an
agreement with the International Monetary Fund.
- We are also a democracy-albeit a fledgling one.
These actions provide important signals to the global and
local business community. It signals that we are doing
everything possible to lower business risks and keep it
low.
In this context, I am pleased to announce that the World
Economic Forum will soon host a meeting in Geneva to rally
the international business community in support of Iraq.
But that is not all. An enabling environment requires
public investments in infrastructure and public investments
in our people. Even here we have been making some progress
despite the utter devastation we inherited from the
previous regime.

- Telecommunications have been expanded with mobile
telephone networks, fixed lines and satellite televisions
penetrating even the most remote parts of the country.
- Our physical infrastructure is being rehabilitated.
- Over 1,000 schools have been rebuilt.

This is all commendable but of course much more needs to be
done. We are just at the beginning of the journey to
prosperity. We need to restore and expand basic services-
water and electricity-to all 26 million Iraqis. We need to
expand and modernize health care services and bring our
air, road and rail networks into the twenty-first century.
We need to close the digital divide and invest in science
and technology to harness the ingenuity of our people.
To do this we are allocating a huge portion of our
resources to public investment. Our investment budget for
2005-2007 is $28.6 billion,55 percent of which is to be
financed from domestic revenues and 45 percent from grants
and preferential long-term loans from donors. This amounts
to 27 percent of our total expenditures. This high level
of investment in the national budget constitutes roughly 33
percent of Gross Domestic Product and we estimate that it
will produce an economic growth rate of 12 percent over the
next three years. This is the same level of investment
that saw the Asian Tigers grow into prosperous countries
within a generation.

But even that will not be enough to create an enabling
environment for investment. The government also needs to
work differently
- We will need to reduce public sector deficits,
making sure that they do not crowd out private investments.
- It demands, therefore, prudent fiscal policy and
responsible fiscal management that are sustained credibly
over time. This is what my colleague the Minister of
Finance has just spoken to you about.
- Government credibility will require many tough
choices such as how to reduce the burden on public finances
of loss-making state owned enterprises, how to reform
subsidies, how to deal with the enormous distortions of the
Public Food Distribution System.
- We have already begun to make these tough decisions.
We will shortly announce a two-phase increase in fuel
prices to gradually eliminate the subsidy element. We are
also committed to conducting pilot trials for monetization
of the Public food distribution system so that we can learn
what works and what doesn't.
- The Minister of Finance and I are working closely
together to introduce an Alaska type oil-dividend for Iraq.
This will enable all Iraqis to share in the abundant
natural resource wealth as provided for in our Transitional
Administrative Law.
- We are laying the groundwork for the privatization
of state owned-enterprises and are fully committed to
implementing all the macroeconomic and structural
conditions in the EPCA Agreement including conducting a
monetary survey and maintaining a single Treasury account.
However, notwithstanding our best efforts, progress will be
slow without productive and enhanced partnerships with the
donor community.
An enhanced partnership means finding ways to work better
together. It cannot be business as usual. Like in every
democracy, in Iraq today there is a sense of urgency to
show tangible results. Unless we can show the tangible
benefits of a pluralistic, federal democratic, market
economy, enemies of change will erode our attempts at
reform. The enhanced partnership will require BOTH better
co-ordination among the donors and better coordination
between the Iraqi government and the donors. Otherwise,
donor funds will be locked in a bureaucratic maze and never
reach the people for whom it is intended. This is already
happening. I was amazed to learn recently that of 90
million dollars in the World Bank Trust Fund for Iraq for
emergency water supply ZERO has been disbursed. Of 55
million dollars for private sector development ZERO has
been disbursed. Of 7 million dollars for capacity building
only 300,000 had been spent.

This is unacceptable.

We need to do better. The Iraqi side has to bear its share
of the blame for this state of affairs.

We have started taking steps to reverse this situation.
We are strengthening our capacity as the Government's lead
agency for private sector development and investment
planning and investment promotion in several ways.

- Through our Grant Aid Coordination Unit, the Ministry
will strengthen its role as the point of contact for all
donor coordination, to ensure the proper and effective
allocation of all donor resources to the areas of highest
priority.
- We are strengthening our capacity to coordinate
directly with the Ministry of Finance to integrate donor
funding into the national budget, to ensure conformity with
the overall budgetary framework.
- We will improve our capacity to guide, assist and
supervise sector Ministries in their national execution of
donor-funded projects within their respective sectors, and
coordinate between these Ministries and multilateral and
bilateral financial and developmental organizations.
- As Chair of the Council for International Coordination
(CIC),I intend to recommend a new donor coordination
mechanism that will be more inclusive, Iraqi-led, based in
Baghdad.
- We will operationalize a comprehensive Donor Assistance
Database.
- On the Donor side we need to work together with you to
simplify and harmonize your policies, procedures and
practices to minimize bureaucracy and delays in project
implementation. I met with many of your representatives on
Saturday in Baghdad and look forward to working with them
to improve our systems.

At the Donor Coordination Conference in Amman next month we
will present concrete proposals for new donor coordination
mechanisms to quickly eliminate unnecessary bureaucracy and
remove any bottlenecks to speedy project implementation.

Ladies and Gentlemen,

The Vision we have laid out for the new Iraq is bold and
ambitious but with the support of the international
community it is achievable. But make no mistake the road
ahead will be difficult. The strategy, policies and
actions to achieve the Vision will create winners and
losers. This fact challenges people with vested interests
in the status quo. It also challenges those with radically
different political and economic views about the course or
process of change. Development is about change changing
mind-sets, changing ways of doing business, eventually
transforming society.

Therein lies the challenge of achieving lasting change in a
pluralistic, democratic society. Reconciling winners with
losers, changing minds that have long been made-up, winning
debates on the merits and encouraging innovative thinking
to realize our Vision we need a sharp scaling-up of
resources we need a new Marshall Plan for the new Iraq but
we know that greater quantities of aid alone will NOT yield
better results. For aid to be effective it will need to be
better coordinated among yourselves, properly aligned with
national priorities, quickly disbursed and with tangible
benefits rapidly accruing to the intended beneficiaries in
Baghdad or Samawa or Mosul or Erbil.

Let me conclude with this appeal. Iraq is a pivotal state
in the Middle East and has the potential to use its huge
natural resources and the dynamism and ingenuity of its
peoples to make the world a better place for all. We
should be using our god-given assets to be donors for the
development of less fortunate countries around the world.
Unfortunately, we find ourselves in the uncomfortable
position of seeking aid from the international community.
To return Iraq to its rightful place in the community of
nations we need your help, and we need it NOW. Please DO
NOT DELAY. The time for action is NOW. Your assistance is
an INVESTMENT not only in the future of Iraq, but in the
future of the Middle East and the entire community of
nations.

The dividend from supporting Iraq NOW will be repaid many
times over -------------- and for generations to come (PAUSE) just
as the dividend from the MARSHALL PLAN is still paying
dividends today (PAUSE) it propelled Europe to greater
prosperity than ever before, it is now helping Europe
eradicate poverty around the world and promote peace and
scuity fo all mnknd.
adies and Getlemen

It worked in Europe it will work in Iraq.

Al-salaam Alaikum

I thank you

END TEXT


4. TEXT OF Minister of Finance Ali Allawi's Speech

BEGIN TEXT

Your Excellencies, Ladies and Gentlemen . . .

It is a great honor to be here and to help renew the care
for a free, independent, democratic, and prosperous Iraq.

The Iraqi state and economy was devastated by years of war
and dictatorship. What we inherited, after the collapse of
the tyranny, was massive indebtedness, a dysfunctional
state geared to war and oppression, and a hugely distorted
and ill-operating economy.

The efforts needed to stop and then begin to redress this
state of affairs are truly Herculean. And this cannot be
done without the full and effective participation of the
world community.

The Iraqi Transitional Government, the first fully
democratic, elected government in Iraq's history, is
determined to tackle this legacy, within the terms of its
mandate and its period in office.

The state of the Iraqi economy is fragile. We are
massively dependent on our oil revenues. In the 2005
budget, oil revenues account for over 95% of governmental
revenues, excluding grants. Our oil exports are reliant on
the effective operation of both our Northern and Southern
oilfields, and while our level of exports, at 1.4 m b/day
are lower than budgeted because of the closure of the
Northern pipeline, the total revenues achieved are within
budget because of higher oil prices. The flow of grants
and loans from the international community, which are
essential for reconstruction, have not been within the
expected levels.

The state continues to be the main employer and the level
of unemployment is unacceptably high. Public and private
investment is running at about 30 percent of GDP is
inadequate for maintaining the required level commensurate
with the reconstruction needs of the country.

Transfers from the state budget, mainly in the form of huge
subsidies for petroleum products, maintaining the food
distribution system, and extremely low prices for
utilities, are a great drain on the budget.

The defunct regime has burdened generations of Iraqis with
debt levels of incredible proportions.

But the ITG is determined to tackle these issues head on,
within our limited time frame of government. We have, in
the Ministry of Finance, in close partnership with the
Central Bank of Iraq and the Ministry of Planning, set four
basic goals for the ITG in the area of economic and
financial reform.

Firstly, to maintain the momentum established by the
Interim Iraqi Government to conclude debt reduction talks.

We have inherited over $125 billion of debt, as well as
over $50 billion of compensation claims from the Gulf War.
Resolution of Iraq's indebtedness is crucial for ensuring
that economic revival commences in earnest.

A major step has been taken in this regard with the
conclusion of a historic agreement with Paris Club
creditors in November of 2004. We have recently signed a
number of bilateral agreements with Paris Club countries
that confirm the framework agreement. Here, I would like
to express our thanks and appreciation for the US
Government for its decision to write off all of Iraq's
debt.

We are well advanced in preparing similar proposals for the
categories of creditors, within the overall ceiling of
Paris Club terms. These would include commercial
creditors, and other countries to which Iraq is indebted.

We recognize that the full application of the terms of the
Paris Club agreement requires that we enter an agreement
with the IMF for a Stand-by Agreement. The Governor of the
Central Bank of Iraq and I have had very extensive and, I
believe, successful talks with the IMF earlier this month.

Secondly, the ITG is determined to confront the issues of
subsidies and universal entitlements, and their deleterious
effect on economic incentives, price structures, open
market, corruption-free transactions, and a balanced
budget. But we are also aware that there could be large
welfare implications for our people, and we shall structure
these necessary changes in ways that would minimize the
effect on our people, and in particular the large category
of poor and disadvantaged people.

In this regard, the Ministry of Finance, is preparing a
supplementary budget for the balance of 2005, whereby the
process of removing petroleum subsidies will commence.

We are also implementing radical reforms in our financial
management systems, to ensure that the quality and
timeliness of our economic information is appropriate.
This will also help us in improving the effectiveness of
our decision-making, reducing the level of corruption, and
making government accountable and transparent.

In the 2006 budget, which we are in the process of
preparing for early October, we will announce a number of
revenue generating measures, including specific actions to
improve tax and duty collection. This will broaden our
revenue base, but will not and cannot replace the fact that
we are an oil-dependent economy for the foreseeable future.
Large commitment must continue to be made to the oil
sector, in order to sustain and increase our level of
production and exports. We are budgeting for 2006 an
improvement in our present level of exports to about 1.8
million b/day with buoyant oil prices.

But our budgeted revenues cannot possibly meet the level of
current and future capital expenditures without significant
support in the form of grants and loans from the
international community. It is here that we sincerely hope
that the commitments made in the Madrid Conference be re-
affirmed, activated, and extended.

The ITG will also, as a matter of urgency, tackle the vital
issue of banking sector reform. Our banks, especially
state-owned institutions which dominate the banking sector,
must be modernized and made to operate as essential units
for mobilizing savings, maintaining an effective payments
system, and ensure the flow of credit to businesses and
entrepreneurs.

The prospects for Iraq, in the medium-term, are extremely
bright. Iraq's dilemma is one of the near-term. We have
to reconstruct our political life, our economy, and our
civil society. This is truly underway. Once these
foundations are established, then Iraq's reintegration into
the global economy will be swift and we will regain our
rightful place in the community of open, democratic, and
prosperous nations.

END TEXT

Satterfield